Greeks are heading to the polls to choose their government again this weekend — though you wouldn’t know it from the relative silence in the international media.
Left-wing Syriza was catapulted to power in January on an anti-bailout ticket, but they buckled and agreed to a renewed austerity-for-funding agreement in July.
Now, after calling snap elections, they promise to implement the agreement more fairly than had previously been the case. As in most other countries, the leftists want to cut the deficit with tax increases, while the right wants spending cuts.
The election is looking unexpectedly close. Popular Unity, a group of Syriza’s most left-wing MPs, quit the party and are running separately. Now the remaining Syriza MPs are pretty much neck-and-neck with New Democracy, the centre-right party that held government previously.
Europe has already won this election, and the brunt of the next government’s programme has been decided in Brussels already. International headlines have disappeared and Athens is no longer the centre of attention for global financiers. Europe has even moved on to crises new.
There’s no doubt that things are more stable than they previously have been, but the actual deal doesn’t seem any more likely to be realistically implemented by either side.
That element hasn’t changed. The country’s tremendously large privatisation programme would be a huge millstone even for a centre-right government, let alone for a party like Syriza.
The country still has to run significant budget surpluses and try to implement many of the structural reforms that it’s failed to do before. There’s no guarantee of success, and success is required to get debt relief from the eurozone.
And even if there is enough of a success to get debt relief, that won’t come in an outright form. Greece will have longer to pay back existing loans, and the interest rates may be cut. But Germany’s policymakers have been completely insistent that there will be no haircuts where the total level of debt is simply slashed.
Christian Odendahl at the Centre for European Reform argues that Greece really requires proper debt haircuts to return to capital markets and fulfil its own financing needs — the ultimate goal of the programme. Here’s Odendahl:
By the measure of gross financing needs, Greece is miles away from returning to the markets at sustainable interest rates. This is why the Greek debt burden needs to be significantly reduced even if Athens manages to deliver on the long-term primary budget surpluses of 3.5 per cent of GDP from 2018 and the economy grows as currently projected (around 3 per cent per year in 2017 and 2018, and 1.75 per cent in the long run).
And that’s a big if. Projections for Greek GDP have been consistently and dramatically wrong for years (check the chart to the right).
So Greece is not fixed by any stretch of the imagination.
The polls are tight between New Democracy and Syriza, but neither looks likely to come anywhere near to an overall majority alone. There’ll be a difficult task of coalition-building, with smaller centrist and centre-left parties. That could be particularly hard for Tsipras, who seemed to rule out most potential coalition partners early in the campaign.
And even if New Democracy wins, it’s not as if the social forces that brought Syriza to power have disappeared. The Greek economy has been shattered, unemployment is still extremely high, and the cash shortage that was exacerbated by capital controls continues.
Based on the requirements of the bailout, the state of the country’s politics, and the general economic outlook for Europe, which seems more likely: That Greece will run into new political and economic turmoil? Or that it will surmount its problems and come to a sustainable agreement with its European partners?
Don’t take your eye off what’s happening in Athens just yet.
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